A retailer's demand for a stock-keeping unit (SKU) 756-RDU, white towels, is 28,540 per year. The cost of placing an order is $850, and the holding cost per unit per year is $32.
What is the economic order quantity?
What will be the total inventory cost in this case?
How many orders will the retailer place per year?
The supplier sells these specific white towels (SKU 756-RDU) in cases of 500 units only, such that any orders must be placed in multiples of 500 units. This makes it impossible for the retailer to order the exact EOQ (as calculated in part a.). Given this constraint, what order quantity would you recommend and why?
Hartley Incorporated buys plastic resin by the ton and then packages and distributes it in smaller amounts to industrial users. The resin typically costs $50 per ton, and Hartley uses 80,000 tons each year. Placing an order for more resin costs $500 in allocated labor costs for purchasing personnel. Holding costs for the resin are estimated at 1% of the product value each month. Hartley operates 365 days a year.
a. How much resin should Hartley order each time?
b. What will be the average inventory and annual holding cost?